Japan stocks dive after weak data from US and China

Japan’s Nikkei 225 stock average has dived more than 4% as weakness in US and Chinese manufacturing sent Asian markets sharply lower.

The slide in Asian stocks followed losses yesterday in Europe and on Wall Street after sentiment was hurt by the weak data from the world’s two biggest economies.

The Nikkei tumbled 4.2% to 14,008.47 and is down 14% over the past month. Toyota sank 5.7% before reporting a fivefold surge in its quarterly profit and Sharp plunged 8.4%.

There were signs US markets might stabilise with Dow futures up 0.2% and S&P 500 futures up 0.4%. But market strategists said investors should be cautious about plowing back into stocks.

“Investors should steer clear of risk assets over the short term as the turmoil does not look like it will be over anytime soon,” Credit Agricole CIB said in a report.

Investment sentiment was already fragile because of signs of stress in the financial markets of nations such as Turkey and Argentina. The Federal Reserve is incrementally withdrawing massive stimulus as the US economy recovers from 2008 financial crisis, sending shockwaves through markets that were driven higher by the tide of cheap money created by the Fed’s policy.

Sentiment took a further hit after an official Chinese manufacturing survey showed that factory output grew at a slower rate in January compared with December.

The sell-off in stock markets accelerated after an equivalent US survey showed an unexpected drop in January. The ISM index fell to 51.2 points from 56.5 the previous month.

Analysts say that may be due to the extreme cold weather that hit the country, but is nevertheless disappointing for an economy that hopes to be rebounding.

Some of the slowdown in Chinese manufacturing might be due to Lunar New Year holidays spanning the end of January and early February, reducing working days in both months. But analysts said there could also be an underlying slowdown at work.

“True, there are distortions related to the timing of Lunar New Year, and a pollution and corruption crackdown by Beijing, but the message is still that we are seeing slower growth,” Michael Every, head of financial markets research for Asia-Pacific at Rabobank, said in a report.

Hong Kong’s Hang Seng declined 2.7% to 21,443.63 on its first day of trading following a 4-day weekend for Lunar New Year. Markets in China and Taiwan were closed. Australia’s S&P/ASX 200 dropped 1.8% to 5,097.10. Stocks in the Philippines and Thailand also fell.

The US stock market finished its worst day in more than seven months yesterday. The Dow Jones industrial average sank 2.1% and the Standard & Poor’s 500 dived 2.3%. The Nasdaq composite closed 2.6% lower.